EUR/JPY rises above 162.00 on record trade deficit in Japan, Eurozone PMI in focus

• EUR/JPY gains ground as Japan’s trade balance reports a deficit of ¥621.84 billion in July.
• The Reuters poll showed 31 of 54 economists predicted the BoJ would raise borrowing costs by the end of the year.
• The Euro is supported ahead of Eurozone and German PMI data scheduled for release on Wednesday.

The EUR/JPY pair snapped its three-day losing streak, trading around 162.00 during Asian hours on Wednesday. This rally in the EUR/JPY pair could be attributed to the weak Japanese Yen (JPY) following the release of trade balance data on Wednesday.

Japan’s merchandise trade balance fell into a deficit of ¥621.84 billion in July, reversing the ¥224.0 billion surplus reported in June and missing market estimates of a ¥330.7 billion deficit. This is the fifth deficit so far this year as imports rose at a much faster pace than exports.

However, the JPY’s downside could be limited due to the increasing likelihood of another interest rate hike in the near term. Traders are also anticipating Bank of Japan (BoJ) Governor Kazuo Ueda’s appearance in parliament on Friday, where he will discuss the central bank’s decision last month to raise interest rates.

More than half of economists expect the Bank of Japan (BoJ) to raise interest rates again by the end of the year, according to a Reuters poll released on Wednesday. In the Aug. 13-19 survey, 31 of 54 economists predicted the BoJ would raise borrowing costs by the end of the year. The median forecast for the year-end rate is 0.50%, marking a 25 basis point increase.

In the Eurozone, traders expect the European Central Bank (ECB) to gradually reduce interest rates. However, ECB officials have been cautious about committing to a specific timetable for rate cuts, given their concerns that inflationary pressures could rise again.

On Tuesday, the European Monetary Union’s (EMU) Harmonized Index of Consumer Prices (HICP) data showed no change month-on-month for July, as expected. Meanwhile, the core HICP fell 0.2%, in line with the decline seen in June.

Traders are likely to watch Eurozone and German Purchasing Managers’ Index (PMI) data scheduled for release on Wednesday. The HCOB Composite PMI for the Eurozone is expected to report a reading of 50.1, down from the previous reading of 50.2.